Servicing Companies Receiving Taxpayer Money To Modify Loans

By Author: Nick Adama
Total Articles: 197
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With the recent analysis that nearly 75% of homeowners offered mortgage modifications by banks or servicing companies will end up defaulting again within a year of receiving the modification, it should be clear how ridiculous the government's programs to stop the foreclosure crisis have become. However, another level of insanity is being added with the new Home Affordable Modification Program Guidelines.

These guidelines, part of President Obama's plan to save the economy from the foreclosure crisis, reward mortgage servicing companies with thousands of dollars of taxpayer money for offering loan modifications that will almost certainly redefault. The following is from the Treasury Department's press release:

"Servicers will receive an up-front Servicer Incentive Payment of $1,000 for each eligible modification meeting guidelines established under the initiative. Servicers will also receive Pay for Success payments -- as long as the borrower stays in the program -- of up to $1,000 each year for up to three years."

The up-front payment is the real issue here, as it allows mortgage servicers to offer loan ...
... modifications to almost any borrower, regardless of their long term ability to pay back the loan or not. As long as the modification meets the terms of the program reducing the mortgage payment to 38% of the borrowers' gross monthly income, the banks will get their $1,000 bonus for participating in the new program.

The payout deal is also being extended to the disastrous Hope for Homeowners refinance program. According to the press release, "Similar incentives will be paid for Hope for Homeowner refinances," despite the fact that the program should be shut down -- not extended with more taxpayer money being handed out to the banks by bureaucrats who have received over $300 billion and helped only one borrower.

Even more incentives are paid to mortgage holders and servicers that agree to modify a loan before it is in default:

"One-time bonus incentive payments of $1,500 to lender/investors and $500 to servicers will be provided for modifications made while a borrower is still current on mortgage payments. the servicer will be required to maintain records and documentation evidencing that the Trial Period payment arrangements were agreed to while the borrower was less than 30 days delinquent."

Thus, the servicing company and lender will receive up front payments from the taxpayers for modifying a mortgage that may be on the short road to default anyway. Looking at a borrowers' credit history or conversing with the owners soon after a default (but less than 30 days after a payment is missed), banks will have a fairly good idea of where the loan is going -- either paid back or foreclosed on.

People are losing their incomes in huge numbers and have little means or incentive to keep a house with negative equity. In response, the government has set up a program to give the lenders up front payments to modify mortgages in an attempt to keep people in these overvalued homes. But with a 75% redefault rate, it is clear that families are losing their homes anyway and the banks are being handed over even more money.
Nick publishes articles providing foreclosure help and solutions to borrowers who are at risk of losing their properties. His sites examine various solutions to saving a home, including large sections on how to qualify for a loan modification that will not almost certainly default. Visit his site today to read more about how foreclosure works and why a mortgage modification will help you: http://www.foreclosurefish.com/